Oil briefly tops $96 in wake of Algeria attack

LOS ANGELES (MarketWatch) — Crude-oil futures rose Thursday, briefly surpassing $96 a barrel on supply concerns arising from the takeover of a natural-gas plant in Algeria by Islamist militants and the subsequent deaths of some hostages.

Light, sweet crude for February delivery
US:CLG3
traded as high as $96.04 a barrel on the New York Mercantile Exchange. The contract finished the session higher by $1.25, or 1.3%, at $95.49 a barrel. Oil futures thus traded at their highest levels since mid-September, tracking front-month contracts on FactSet.

The Wall Street Journal cited a U.K. foreign office spokesman as saying it appeared an Algerian military rescue operation was underway at the remote gas plant where militants with possible links to Al Qaeda seized about 40 foreign hostages on Wednesday. See: Algerian rescue operation under way.

News reports Thursday indicated that Algeria’s military launched a helicopter strike on the site and that 35 of the foreigners and 15 of the kidnappers had been killed.

The hostage situation at the facility, operated by BP PLC
BP, -0.97%
and Statoil ASA
STO, -1.23%
came days after France sent troops to fight alongside Mali’s army, which is seeking to halt an al Qaeda-linked insurgency in the former French colony.

“Even with U.S. production of crude at the highest levels in 20 years, prices have rallied this month due to the renewed uncertainty hitting the markets due to the Algerian hostage situation,” said Jason Rotman, a partner at Managed Futures Investments, in emailed comments.

Oil prices in January have risen roughly 4%. Oil futures ended 2012 with a loss of 7.1%, marking the first yearly decline since 2008.

More importantly, the attack may signal “a downswing” for political stability in Algeria, which produced nearly 1.2 million barrels a day of crude and 88 billion cubic meters of gas in 2012, they wrote.

Algeria is “therefore the latest candidate to be added to the long list of countries at risk from political turmoil in the MENA [Middle East-North Africa] region and could underpin the geopolitical risk premium further,” the JBC analysts said.

Meanwhile, the European Union on Thursday approved a plan to help Mali defend itself against the militants by sending in a military training mission.

Shell Oil Company

A Shell oil rig.

The front-month crude contract rose 96 cents in New York Wednesday. Support was primarily tied to an unexpected drop in U.S. inventories and after the Organization of the Petroleum Exporting Countries confirmed a significant production cut last month by Saudi Arabia. See: U.S. crude supply fall surprises; oil reclaims $94.

Tim Evans, energy analyst at Citi Futures, said the reduction in Saudi output “was something of a measured response to soft demand,” noting that steady output at the December rate would still result in surplus production.

“Thus, we anticipate both a further modest reduction in OPEC production and rising inventories over the first half of 2013,” he added.

On the U.S. economic front, data released Thursday were upbeat, boosting the prospects for oil demand. Initial jobless claims fell last week to their lowest level since January 2008, while housing starts jumped in December to their highest rate in more than four years. See: Housing starts jump in December.

“We had better-than-expected housing starts and jobless claims [...] while a weaker U.S. dollar and the situation in Algeria supported [oil] prices further,” said Fawad Razaqzada, technical analyst at GFT Markets, in a note.

“All these factors have helped the [West Texas Intermediate] contract to break above that key $94 resistance level, so the technicals are starting to look bullish for crude oil too,” he said.

The only factor that may hamper further gains in the near term is if the data releases on Friday from China prove disappointing, he said, adding that growth in the world’s second-largest economy is expected to have accelerated to 7.8% in the last quarter of 2012 from a 7.4% rate in the third quarter.

Brent prices to pop higher?

What could also be headed higher are prices for Brent oil, possibly reaching $150 a barrel this summer, a Goldman Sachs commodities strategist said Thursday.

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